The Roll Rate is a critical metric used in credit risk management to measure the movement of accounts from one delinquency stage to another. Financial institutions use this calculation to forecast future losses and determine necessary reserves (ALLL).
How the Calculation Works
The formula for a roll rate is relatively straightforward but provides deep insights into portfolio health:
Roll Rate (%) = (Balance in Bucket n+1 at Time t) / (Balance in Bucket n at Time t-1) * 100
Practical Example
Suppose you are analyzing the transition from "Current" status to "30-Day Delinquent":
Last Month: Total balance in the "Current" bucket was $1,000,000.
This Month: Of that original million dollars, $50,000 moved into the "30 Days Past Due" bucket.
The Roll Rate: (50,000 / 1,000,000) = 5.00%.
Why Roll Rates Matter
By tracking these rates over time, risk managers can identify trends. If the roll rate from "30 Days" to "60 Days" increases, it indicates that collections efforts may be failing or that economic conditions are worsening for borrowers, signaling higher future charge-offs.
function calculateRollRate() {
var prev = document.getElementById("startingBucket").value;
var curr = document.getElementById("endingBucket").value;
var resultDiv = document.getElementById("resultArea");
var output = document.getElementById("rollRateOutput");
var interpret = document.getElementById("interpretation");
var startVal = parseFloat(prev);
var endVal = parseFloat(curr);
if (isNaN(startVal) || isNaN(endVal) || startVal 20) {
message = "Warning: This is a high roll rate. It suggests a significant portion of accounts are deteriorating into further delinquency.";
} else if (rollRate > 5) {
message = "Moderate: This roll rate indicates a standard level of movement between buckets, but should be monitored against historical benchmarks.";
} else {
message = "Stable: This is a low roll rate, typically indicating strong portfolio health or effective early-stage collections.";
}
interpret.innerHTML = message + "This means that for every 100 units of currency in the previous bucket, " + (rollRate).toFixed(2) + " units rolled into the next delinquency stage.";
}